Vol. 136, No. 23 — November 6, 2002

Registration SOR/2002-374 15 October, 2002

CANADIAN ENVIRONMENTAL PROTECTION ACT, 1999

New Substances Fees Regulations

Whereas, pursuant to subsection 332(1) of the Canadian Environmental Protection Act, 1999 (see footnote a) , the Minister of the Environment published in the Canada Gazette, Part I, on June 30, 2001 a copy of the proposed New Substances Fees Regulations, substantially in the form set out in the annexed Regulations, and persons were given an opportunity to file comments with respect to the proposed Regulations or to file a notice of objection requesting that a board of review be established and stating the reasons for the objection;

Whereas, pursuant to subsection 328(3) of that Act, the fees that are prescribed by the annexed Regulations for services provided do not exceed the cost to Her Majesty in right of Canada of providing those services;

And whereas, pursuant to section 329 of that Act, the Minister of the Environment and the Minister of Health have consulted with those persons and organizations that the Minister of the Environment and the Minister of Health consider to be interested in the matter;

Therefore, the Minister of the Environment and the Minister of Health, on the recommendation of the Treasury Board, pursuant to section 328 of the Canadian Environmental Protection Act, 1999 (see footnote b) , hereby make the annexed New Substances Fees Regulations.

Ottawa, September 3, 2002	Ottawa, October 11, 2002
David Anderson Minister of the Environment	A. Anne McLellan Minister of Health

NEW SUBSTANCES FEES REGULATIONS

INTERPRETATION

1. The definitions in this section apply in these Regulations.

"Act" means the Canadian Environmental Protection Act, 1999. (Loi)

"assessment" means the assessment of information in respect of a new substance for the purpose of determining, under section 83 of the Act, whether the new substance is toxic or capable of becoming toxic. (évaluation)

"DSL" means the Domestic Substances List maintained by the Minister under subsection 66(1) of the Act. (LIS)

"Minister" means the Minister of the Environment. (ministre)

"NDSL" means the Non-Domestic Substances List maintained by the Minister under subsection 66(2) of the Act. (LES)

"new substance" means any substance that is not on the DSL. (substance nouvelle)

"notifier" means any person who manufactures or imports a new substance, or who intends to do so, and who provides, in accordance with paragraph 81(1)(a) of the Act, the information required under a schedule to the New Substances Notification Regulations. (déclarant)

APPLICATION

2. (1) These Regulations do not apply to a substance that is an animate or inanimate product of biotechnology.

(2) These Regulations do not apply to the notifier of a new substance that is manufactured or imported for a use that is regulated under any other Act of Parliament, including the Food and Drugs Act, the Fisheries Act and the Health of Animals Act.

INITIAL FEES

3. Subject to section 5 and the reductions provided for in sections 6 and 7, a notifier of a new substance who for the first time provides the information required under any schedule to the New Substances Notification Regulations set out in column 1 of Schedule 1 to these Regulations shall pay for the assessment of that substance the amount set out in column 2 under the heading corresponding to the notifier's annual sales in Canada.

SUBSEQUENT FEES

4. Subject to section 5 and the reductions provided for in sections 6 and 7, a notifier of a new substance who has provided with respect to that substance the information required under any schedule to the New Substances Notification Regulations, and who subsequently provides, with respect to the same substance, information required by another schedule to those Regulations set out in column 1 of Schedule 1 to these Regulations, shall pay for the assessment of that substance in respect of that other schedule the amount set out in column 2 under the heading corresponding to the notifier's annual sales in Canada, reduced by any amount previously paid for the assessment of that substance in respect of any other schedule to the New Substances Notification Regulations, but the reduction may not result in a negative amount.

FINAL FEES

5. Subject to the reductions provided for in sections 6 and 7, a notifier of a new substance who provides the information required under Schedule II or VI to the New Substances Notification Regulations, and who is not required under those Regulations to provide subsequent information with respect to the same substance, shall pay for the assessment of that substance the amount set out in column 2 of Schedule 2 to these Regulations under the heading corresponding to the notifier's annual sales in Canada, reduced by any amount previously paid for the assessment of that substance in respect of any other schedule to the New Substances Notification Regulations, if applicable, but the reduction may not result in a negative amount.

REDUCTIONS — MATCHED NOTIFICATIONS AND CONSOLIDATED NOTIFICATIONS

6. A notifier of a new substance who requests of the Department of the Environment the use of information that was previously provided by another notifier with respect to the same substance, which notification is known as a matched notification, is not required to pay an amount under section 3, 4 or 5, but shall pay an amount of $200 for the assessment of that substance.

7. A notifier of a maximum of six new substances of the same class, where the information provided under the schedules to the New Substances Notification Regulations for each substance is identical, which notification is known as a consolidated notification, shall pay the amount required under section 3, 4 or 5 for the assessment of one of those substances and an amount of $250 for the assessment of each other of those substances.

MAXIMUM FEES

8. Despite sections 3 to 5, the maximum fees payable for the assessment of a new substance on the basis of the information required under the schedules to the New Substances Notification Regulations is $2,625, where the notifier's annual sales in Canada are less than $40 million, and $3,500, in any other case.

FEES FOR OTHER SERVICES

9. The fee payable for a service set out in column 1 of Schedule 3 to these Regulations is the fee set out in column 2 under the heading corresponding to the annual sales in Canada of the person for whom the service is provided.

ANNUAL SALES

10. (1) A person who requests that fees payable under these Regulations be based on the person's annual sales in Canada shall provide to the Minister the person's sales reports for Canada according to the person's financial statements for the previous fiscal period prepared in accordance with generally accepted accounting principles and certified as true and correct by that person or, in the case of a corporation, by the manager responsible for the corporation's financial affairs.

(2) Despite any other provision of these Regulations, if the information relating to annual sales in Canada is not provided, fees payable shall be based on annual sales above $40 million.

PAYMENT

11. The fees payable under sections 3 to 9 shall be paid by certified cheque or money order to the Receiver General at the time the service is requested.

COMING INTO FORCE

12. These Regulations come into force on January 1, 2003.

SCHEDULE 1 (Sections 3 and 4)

ASSESSMENT FEES

Column 1		Column 2 Fee ($)
		Annual Sales ($ Million)
Item	NSN Schedule*	<= 13	> 13 <= 26	> 26 <= 40	> 40
1.	Schedule I	50	100	150	200
2.	Schedule II	500	1,000	1,500	2,000
3.	Schedule III	875	1,750	2,625	3,500
4.	Schedule V	500	1,000	1,500	2,000
5.	Schedule VI	125	250	375	500
6.	Schedule VII	875	1,750	2,625	3,500
7.	Schedule VIII	875	1,750	2,625	3,500
8.	Schedule XIII	500	1,000	1,500	2,000

^* Schedule to the New Substances Notification Regulations.

SCHEDULE 2 (Section 5)

ASSESSMENT FEES

Column 1		Column 2 Fee ($)
		Annual Sales ($ Million)
Item	NSN Schedule*	<= 13	> 13 <= 26	> 26 <= 40	> 40
1.	Schedule II	750	1,500	2,250	3,000
2.	Schedule VI	375	750	1,125	1,500

^* Schedule to the New Substances Notification Regulations.

SCHEDULE 3 (Section 9)

FEES FOR OTHER SERVICES

Column 1		Column 2 Fee ($)
		Annual Sales ($ Million)
Item	Service*	<= 13	> 13 <= 26	> 26 <= 40	> 40
1.	Confidential search*	62.50	125	187.50	250
2.	Masked name application**	150	300	450	600
3.	Application under Four Corners Agreement***	500	1,000	1,500	2,000

^* Search of substances appearing on the DSL or NDSL that have been published under masked names.

^** Application for a masked name, as defined in the Masked Name Regulations, for a new substance.

^*** Application for a service under the Agreement for Sharing of Information Between the U.S. Environmental Protection Agency (USEPA), and Environment Canada (EC) and Health Canada (HC) (the "Four Corners Agreement").

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Description

This initiative is to implement a cost recovery scheme for the assessment and notification processes of the New Substances Notification Regulations (NSNR) through the promulgation of the New Substances Fees Regulations (NSFR), under section 328 of the Canadian Environmental Protection Act, 1999 (CEPA, 1999).

The basis for implementing cost recovery initiatives is to improve efficiency and equity by charging clients or beneficiaries who benefit from services beyond those enjoyed by the general public. The implementation of a cost recovery scheme for the NSNR was recommended following Environment Canada's 1995 Program Review.

The fee to be recovered as a result of the implementation of the cost recovery regulations is expected to total approximately $700,000 a year corresponding to about 22% of the total cost of administering the New Substances Notification (NSN) Program in 1998. This cost recovery scheme is limited to the chemicals and polymers regulations of the NSN Program.

The biotechnology portion will be examined under a separate process. The transitional substances, which fall under subsection 81(2) of CEPA, 1999, are excluded from this regulation because the notification period for transitional substances ended July 1, 1999. These Regulations also do not apply to the notifier of a new substance that is manufactured or imported for a use that is regulated under any other act of Parliament, including the Food and Drugs Act (FDA), the Fisheries Act (FA) and the Health of Animals Act (HAA).

Background

The NSNR were made pursuant to the Canadian Environmental Protection Act (CEPA). Part I (Chemicals) and Part II (Polymers) of the regulations came into effect on July 1, 1994. These Regulations ensure that no new substances are introduced into the Canadian marketplace before an assessment of their toxicity is conducted. A "new substance" refers to a substance that is not on the Domestic Substances List (DSL) which included 23,500 substances as of July 1999. The toxicity assessment addresses environmental and health concerns.

Environment Canada (EC), through its New Substances Branch, has the responsibility for managing the NSN Program and is therefore responsible for administering the NSNR. However, EC and Health Canada (HC) both share the responsibility for assessing new substances proposed to be manufactured in and/or imported into Canada, where EC deals with potential environmental risks and HC deals with potential human health risks.

Under the new CEPA, 1999, when importers and/or manufacturers intend to manufacture and/or import a new substance, they are required to provide EC with a notification package. This package includes administrative information, substance identity information as well as data on the physical/chemical and toxicological properties of the substance and it's anticipated use patterns. Information requirements and explanatory notes are set out in 13 schedules of the NSNR. The stringency of the notification schedule requirement depends on the type of substance, proposed volume of import or manufacture, and proposed usage. EC and HC evaluate the information provided by the notifier to assess the potential toxicity of the substance based on the definition of toxicity in section 64 of CEPA, 1999.

The assessment process, which must be completed within a time limit specified by the NSNR, results in either:

•  a determination that the substances is not suspected of being "toxic" or capable of becoming "toxic",

•  a suspicion that the substance is "toxic" or capable of becoming "toxic", or

•  a suspicion that a significant new activity (SNAc) may result in the substance becoming toxic if there was adequate information available to assess it.

Substances suspected of being "toxic" under CEPA, 1999 may be controlled by one of the measures laid out in CEPA, 1999, including:

•  controls on import and/or manufacture of the substance; or,

•  prohibition of import and manufacture of the substance; or

•  prohibition pending submission and assessment of additional information determined to be required by the Departments.

A substance suspected of being "toxic" is not added to the DSL, and, in some cases, the Ministers may recommend that it be added to the Toxic Substances List (TSL, Schedule 1 of CEPA, 1999).

When it is suspected that a SNAc in relation to the substance may result in the substance becoming toxic, a SNAc Notice may be issued for the substance.

When the substance is not suspected of being toxic under CEPA, 1999, and if the substance meets DSL listing requirements, it is then added to the DSL and it can be manufactured or imported without any controls.

Rationale For The Cost Recovery Proposal

The basis for implementing cost recovery initiatives is to improve efficiency and equity by charging clients or beneficiaries who benefit from services beyond those enjoyed by the general public. This is explained in a 1997 Treasury Board document entitled: Cost Recovery and Charging Policy, which notes that charges differ from taxation in that they are linked to specific benefits which are over and above those enjoyed by the general taxpayer. Another economic rationale for levying user charges is to improve the private sector efficiency, since, based on past discussions, cost recovery will reduce the notification over-use that often exists with free services. As a result, the efficiency of services that are provided by departments will also be improved.

Considering that the NSNR assessment and notification processes provide specific private benefits to the firms wanting to import into and/or manufacture new substances in Canada, the NSFR require that those firms pay fees for the service they receive from EC and HC in assessing the new substances.

To avoid regulatory duplication, CEPA, 1999 includes a provision whereby substances regulated by other Acts are exempt from its new substances notifications requirements. The Scheduling of Other Acts exercise ended September 13, 2001 and resulted in the listing of various Acts and regulations in Schedule 2 (new substances that are chemicals or polymers) and Schedule 4 (new substances that are animate products of biotechnology) of CEPA, 1999. This exercise resulted in the FDA, the FA and the HAA not being listed under CEPA, 1999. For the time being CEPA, 1999 will act as the safety net. HC, DFO and the Canadian Food Inspection Agency (CFIA) have begun putting into place measures towards having these Acts listed under Schedules 2 and/or 4 of CEPA, 1999.

Furthermore, CEPA, 1999 authorizes regulations with exemptions for any persons or classes of persons from the requirement to pay fees, under paragraph 328(1)(c). Considering that it was never the intent to capture under the proposed fees regulations, notifications for new uses regulated under other Acts, the Ministers proposed to use paragraph 328(1)(c) of CEPA, 1999 to add in subsection 2(2) of the NSFR an exclusion stating that the NSFR regulations do not apply to the notifier of a new substance that is manufactured or imported for a use that is regulated under any other Act of Parliament including the FDA, the FA and the HAA.

Private VS Public Benefits

In order to improve the focus of government spending, attention must be paid to who receives benefits from government activities and whether it is reasonable for Canadians in general to continue to pay the full cost in the case where direct benefits accrue to specific individual or organizations. According to the Treasury Board policy: "when there is a mix of public and private benefits, fees should be lower than full cost".

The Treasury Board policy describes the relationship between public and private benefits as "a continuum between purely public and purely private goods". EC and HC have used the continuum approach to differentiate between private and public benefits, as follows:

•  Where private benefits are bestowed upon a distinct individual or corporation those benefits are considered the purest form of private benefits, and are likely to be subject to 100% cost recovery. EC/HC, in its cost recovery proposal, referred to those benefits as "individual" benefits.

•  Where private benefits are bestowed upon a larger but distinct group (e.g., Chemical Industry) or organization those benefits constitute a mix of private and public benefits, and cost recovery fees are likely set lower than 100% of total costs. EC and HC referred to those benefits as "group" benefits.

•  Where public benefits are bestowed upon the society at large those benefits constitute public benefits and cost recovery fees are likely to be set close to a minimal percentage of total costs. EC and HC referred to those benefits as public benefits.

The use of the terms individual and group benefits merely serves to label incremental degrees within the above continuum. The differentiation between individual private benefits and group private benefits serves only to dictate the overall percentage of cost recovery.

Therefore, substances with masked names and substances ineligible for entry onto the DSL lie up in the continuum toward private "individual" benefits and fees for those activities have been set close to 100%. There is recognition that some of the benefits provided by the NSN Program are not entirely "purely private". Those "group" benefits have lead to a reduction in fees from the 100% level. Finally, activities influenced by a public policy rationale such as small and medium-sized enterprises (SMEs), or research and development (R&D) benefit from a significant reduction in fees and in some instances have been totally exempt from paying fees.

Excludability

Excludability is an important factor to consider when deliberating the private/public benefit split. The two main approaches to this issue are:

(I) can individuals be excluded from receiving the notification and assessment service, and

(II) can anyone else be excluded from benefiting from the outcome of that service.

Amendments to CEPA, 1999 allow the commencement of the assessment period to be halted until the notification and fee payment have been made. From this perspective, any individual could be excluded from receiving the notification and assessment service.

As for the EC and HC ability to exclude other individuals (referred to as free-riders) from using the new substance once it is added to the open DSL, it is within government authority to design CEPA such that only notifiers would have access to the substances they notify; in addition, it is well within industry's prerogative to request that this be undertaken. To date no such effort has been made on the part of the Industry Coordination Group (ICG). It seems that industry's preference is to allow entry of these substances onto the DSL, and that the benefit of placing substances on the public inventory outweighs the benefits of instituting a "protected" inventory. Such a system is desired considering the vast majority of free-riders are in fact other notifiers who mutually benefit from these additions, underlining the necessity to retain a group private benefits concept.

During the cost recovery consultation, a proposal was made to base fees relative to individual benefit; however, industry opted for levelling out fees to ensure consistency between charges issued for the same Schedule.

The estimate of the total cost of administering the NSN Program was around $3.25 (see footnote 1)  million a year, in 1998. The fee to be recovered from the implementation of the cost recovery regulations is expected to total approximately $700,000 a year, corresponding to 22% of the total cost of administering the NSN Program in 1998.

Cost Recovery Proposal Criteria

EC has identified five important criteria for its proposal to meet in essence the 1997 Treasury Board Cost Recovery and Charging Policy. These criteria are:

Criterion 1: The Department has determined that the benefit of the cost recovery initiative is a private (individual) benefit or a mix of private and public (group) benefits.

Criterion 2: The cost recovery initiative directly benefits identifiable recipients of the service.

Criterion 3: The cost recovery initiative results in direct benefits beyond those received by the general public.

Criterion 4: The cost recovery initiative does not impact the Program objectives.

Criterion 5: The cost recovery initiative does not unduly impact other government programs.

The NSFR meets all of the above noted criteria as follows:

Criterion 1: Determination of private benefit or a mix of private and public benefits

Substance is assessed but is not yet eligible for listing on the DSL

The information associated with the substance that is provided to EC and HC is treated as confidential; as a result, the applicant is the only one to receive notice that the substance has gone through an assessment process and is not suspected of being toxic. Any other company wishing to import or/and manufacture the same substance is therefore required to submit its own notification package. Consequently, the benefit is a private benefit in that no one other than the applicant company receives the commercial benefit of manufacturing or/and importing the affected new substance.

Substance is assessed and is to be subsequently added to the confidential portion of the DSL using a masked name

The initial notifier has the ability to manufacture or/and import the substance as well as any notifiers filing a Bona Fide statement of intent with EC and HC and receiving confirmation that the substance is indeed on the DSL. Consequently, the commercial benefit is not limited to the initial notifier because any firm presenting a signed Bona Fide statement of intent could also import and/or manufacture the substance, even though it did not share the cost associated with the notification. Consequently, the benefit is private which is made up of a mix of individual (company) and group (chemical industry) benefits.

Substance is assessed and is to be subsequently added to the non-confidential portion of the DSL

The resulting benefit is private, that EC and HC describe as an individual benefit until the substance is added to the DSL. The process is as follows: the information on the substance remains confidential and the applicant is the only one who can import or/and manufacture the substance. When the applicant reaches the trigger volume associated with the schedule for which it has filed a notification, it must file a notice of exceedence informing EC and HC that it has reached the trigger level. Upon receipt of the notice, there is a delay of up to four (4) months before the substance is added to the DSL. Upon the publication on the DSL, the resulting private individual benefit becomes a private group benefit since other applicants who did not share the costs of bringing the new substance to this state can import and/or manufacture it. Consequently, the private benefit is a mix of individual and group benefits.

Criterion 2: Recipients of the service are identifiable

The applicants are easily identifiable, since EC and HC have the names and the coordinates of all notifiers and where they can be contacted.

Criterion 3: Benefits are beyond those received by the general public

Unlike a program which serves the general public, the NSN Program provides a specific service to companies that import and/or manufacture new substances by assessing the toxicity of the substances before they are manufactured in and/or imported into Canada. Such a service entitles the companies affected to derive a commercial benefit from manufacturing and/or importing the substances. When the manufacture and/or the importation of the substance is authorized, firms may proceed with the commercial activities. The Canadian public will indirectly benefit from this commercial activity since it will have access to new products manufactured with new substances, resulting in a public benefit. However, it will not share the commercial benefit derived by the companies. Consequently, the commercial benefit to the companies affected goes beyond the benefits received by the general public.

Criterion 4: Proposal does not impact the Program objectives

The objective of the NSN Program is to assess toxicity of new substances. In order to assess these risks, the NSN regulations require the testing of the new substances by the companies before they are manufactured in and/or imported into Canada. Cost recovery will not require any changes to the testing and will therefore have no impact on the objectives of the NSN Program.

Criterion 5: Proposal does not unduly impact other government programs

Several government programs are aimed at ensuring that the domestic and international competitiveness of the chemical sector is not unduly affected. One objective of the cost recovery regulations is to provide an incentive to each affected firm to not overestimate their need for notifications. The proposal improves the efficiency of the private sector by eliminating overuse of the service, which often exists when a service is provided free of charge.

On the basis of an analysis equivalent to the Business Impact Test (BIT) and further changes to the cost recovery provisions, it was determined that the competitiveness of the chemical industry as a whole will not be unduly impacted as a result of the implementation of this initiative. Internationally, similar cost recovery initiatives exist in the United States, Europe and Australia. The Canadian initiative will therefore not impose an unfair burden on Canadian firms operating in international markets. Consequently, the cost recovery will not unduly impact other government programs.

Alternatives

(A) Assessment of considered options

Four alternatives have been considered in the development of the cost recovery scheme.

(1) Status quo: This option has been rejected because of the government commitment to implement cost recovery further to Environment Canada's 1995 Program Review and the need to ensure consistency with the 1997 Treasury Board Cost Recovery and Charging Policy (CRCP, 1997).

(2) A cost recovery that will cover 100% (about $3.25 million in 1998) of the total cost of administering the NSN Program: This option has been rejected because, as explained above, the benefits of these Regulations are a mix of private (individual and group) and public benefits. Also, given Canada's proximity to the U.S. market, 100% cost recovery may have an impact on competitiveness for the Canadian industry.

(3) Same and unique fee for all NSFR schedules: This option has been rejected because the level of resource requirements differ from one schedule to another. Consequently, each schedule represents a different workload for the government and thus different costs. Consequently, opting for the same and unique fee would be unfair since notifiers submitting notifications related to schedules with lower resource requirements would partially pay for costs related to notifiers submitting notifications related to schedules with higher resource requirements.

(4) Pricing policy and its rationale: The development of the fees structure took into account two main considerations. The first is guided by the assumption that such an approach should result in a fee proposal which is reasonable in the context of the North American market, and should not discourage the introduction of new substances to Canada. The second consideration ensures that EC/HC's consultations with industry (Industry Coordinating Group (ICG)) propose a fee structure comparable to the system currently in place in the United States under the Toxic Substances Control Act (TSCA) Program.

The differentiation between individual and group costs has been obtained through a meaningful dialogue with affected parties. Discussions with affected parties noted that there should be an appropriate mix of individual and group benefits, as well as an achievement of strategic objectives, such as the requirement that a regulatory program should not produce both significant and unreasonable impacts on the regulated activity.

Consequently, we have ensured:

4.1 that each fee is proportional to the schedule's resource requirement.

The cost recovery initiative will implement schedule fees that will vary from $50 to $3,500. Fees will depend on whether applicant companies receive private benefits (the highest fees) or a mix of private and public benefits (the lowest fees). This approach is in accordance with the TBS CRCP, 1997 policy which states that "When there is a mix of public and private benefits, fees should be lower than full costs" (see footnote 2) .

4.2 the fee initiative provides opportunities for no fees in order to avoid adverse impacts on particularly sensitive sectors.

It is proposed that no fees should be charged for notifications associated with research and development (R&D) activities (Schedule XI), and also for notifications associated with product development activities (Schedules IV and XII). Because of the importance of these two activities in the field of basic research, this policy will not only prevent such activities from being negatively impacted, but will also promote their continuation and possible expansion.

4.3 that the fee initiative provides opportunities for reduced fees with the exception of special activities (see footnote 3) .

4.3.1 Subsequent Fees

The cost recovery initiative takes account of the fact that if one notifier submits a "staged" notification in which the higher notification schedule(s) include information already supplied and assessed in previous lower notification schedules, then the fee for the higher schedule(s) is reduced by the amount charged for those lower schedules, in respect of the regulation provision on the notifier's annual sales in Canada.

For example, if an applicant, with annual sales greater than $40 million, needs to file a notification for a substance under Schedule I, it will cost $200. Under staged notifications, if the same notifier needs to file a notification for the same substance under Schedule II which costs $2,000, the fee will be $1,800 ($2,000 minus $200). If this notifier then needs to file a notification for the same substance under Schedule III which costs $3,500, the fee will be $1,500 ($3,500 minus $200 minus $1,800).

4.3.2 Matched Notifications

When a notifier of a new substance requests EC to use information that was previously provided by another notifier with respect to the same substance, such a notification is known as a matched notification, and the notifier is required to pay an amount of $200 for the assessment of that substance.

4.3.3 Consolidated Notifications

When the information to be provided under the schedules to the NSRN is identical for several substances, the notifier could consolidate a maximum of six new substances of the same class in one notification, which is known as a consolidated notification, and pay the amount required under section 3, 4 or 5 in the NSFR, for the assessment of one of those substances and an additional amount ($250 per substance) for the assessment of each of the other substances.

4.3.4 Small and Medium-Sized Enterprises (SMEs)

The pricing policy contains special provisions to ensure that SMEs are not affected in an inequitable manner. The fee structure takes into account the size of potential markets for new substances, through the design of the notification system which reflects the volumes notified.

As a result, fees associated with a lower volume notification (e.g., Schedule I of the NSNR with a fee up to $200) are lower than those associated with higher volume notifications (e.g., Schedule III fee up to $3,500 each). Such an approach will provide an equitable distribution of the impacts among companies introducing new substances since the fees are proportional to volumes. This feature will benefit SMEs, and larger companies that introduce substances for which the market may be restricted.

In addition, EC and HC use a special fee structure for SMEs. SMEs having demonstrated less than $40 million in total Canadian annual sales (see footnote 4)  for their previous fiscal period will be ensured that fees for Regular Activities will not exceed a total of $2,625 and will be entitled to benefit from the reduced fee structure of the NSFR.

4.4 that the fee initiative allows for the implementation of the Four Corners Agreement (FCA)

Under what is referred to as the FCA, EC and HC and the U.S. Environmental Protection Agency (EPA) have agreed to share information on new industrial substances. Under this initiative, a company can ask one government to transmit assessment information related to a notification previously submitted to the other government.

This initiative may expedite the process by which a substance is added to the NDSL (see footnote 5) . The information exchange may reduce testing and information requirements for industry and therefore lower not only its testing costs but also the administrative costs of complying with the cost recovery regulations.

With respect to government, it is expected that annual resources required by EC and HC to handle industry requests regarding information sharing will be equivalent to the resources that was required to process a Schedule IIp (see footnote 6)  notification. Consequently, the fees associated with such a request will range from $500 up to $2,000, depending on the annual sales level of the notifier. EC and HC will respond to FCA requests within 90 days of receipt of complete documentation. If the deadline is not met, the requests will be referred to the Cost Recovery Advisory Panel. The Cost Recovery Advisory Panel is a panel made up of representatives of EC, HC, Industry Canada (IC), the ICG and other industry representatives that will be created to ensure government accountability for the efficiency and effectiveness of the program. In similar cost recovery programs, the duties of such a panel include streamlining operations, conducting third-party reviews, updating performance targets, fee structure, etc.

(B) Comparison With Other Cost Recovery Practices

Systems for notification and listing of new substances have been implemented in most industrialized countries. The government costs of administering these systems are recovered in many countries, including a number of European Union Countries, Australia, and the United States. In other countries (e.g., New Zealand), such systems are either under consideration or are about to be implemented. No cost recovery programs exist in Japan.

A summary table (Table 3) is presented at the end of this section, describing the main similarities and differences between the cost recovery plan under the NSFR and similar foreign initiatives.

(1) Cost recovery initiatives in Canada

In Canada, cost recovery initiatives are implemented by HC through its Pesticide Management Regulatory Agency (PMRA), Canadian Food Inspection Agency (CFIA) and Therapeutic Products Program (TPP) and through Environment Canada's regulations respecting fees for ocean dumping permits. Table 1 provides a comparison of the cost recovery plan under the NSFR and the above mentioned cost recovery initiatives in terms of total administrative costs, total recovered costs, and percentage recovered.

TABLE 1: Domestic cost recovery initiatives

Programs	Total Administrative Costs ($ 1998 )	Total Recovered Costs ($ 1998)	% of Recovered Costs ( % )
NSFR	$ 3.25 million	$ 700,000	22%
PMRA	$ 27.3 million	$ 8 million	30%
CFIA	$ 120 million	$ 60 million	50%
TPP	$ 88 million	$ 41 million	47%
Ocean Dumping Regulations	$1.25 million	$1.25 million	100%

(2) Mexico and United States

In Mexico, a new substances notification program is currently being developed and its implementation date has yet to be set. Mexico is not planning to institute a program of user fees.

In the United States, new substances are controlled under section 2605 of the TSCA. A rule on cost recovery under the Act requires manufacturers, importers and processors to pay fees for pre-manufacture notices (PMNs), certain PMN exemption applications and notices, and significant new use notices submitted under TSCA sections 5(a) and (h).

A fee of $3,815 ($CAN) (see footnote 7)  is levied for regular PMNs and $1,525 ($CAN) are charged for chemical intermediate substances when submitted simultaneously with a PMN for the "final product". A minimum fee of $152 ($CAN) is imposed on SMEs which are defined as having annual sales less than $60.8 million ($CAN). There are no notification requirements and therefore no fees for notifications associated with Low Volume Exemption (LVE), Low Release or Exposure (LoREX), and Test Marketing. Low concern polymers and research and development substances are exempt from submission of a PMN. The United States fees are comparable to the Canadian cost recovery structure, as shown in Table 2.

In the U.S., companies are required to submit only those data that are available at the time of the pre-manufacture notification for new substances. The U.S. EPA categorizes each new substance based on its chemical properties. When there is a possibility of toxicity, it reserves the right to request further data. The Canadian NSN Program is different from the U.S. NSN Program in that it requires that the test results be submitted with the notification package in order to assess whether the substance is toxic as defined by CEPA, 1999 for all new substances. The scope of the tests is proportional to the volume to be manufactured and/or imported.

TABLE 2: Comparison of the cost recovery plan under the NSFR and the U.S. fees

Category	Canadian Fees ($ 1998)	U.S. Fees ($ CAN 1998) 1
Schedule I	$50 to $200
Schedule II	$500 to $3,000
Schedule III	$875 to $3,500
Schedule IV	No fees
Schedule V	$500 to $2,000	$1,525 to $3,815
Schedule VI	$125 to $1,500
Schedule VII	$875 to $3,500
Schedule VIII	$875 to $3,500
Schedule XIII	$500 to $2,000
R&D	No fees	No fees
Schedule VI: Polymers & low concern polymers	up to $ 1,500	No fees
Stage notification allowing reduced fees	Yes	For fee purposes, there is no stage notifications in the U.S.
Low Volume Exemption	20 kg/year for chemicals not on the NDSL2 and 1,000 kg/year for polymers 1,000 kg/year for chemicals on the NDSL and 1,000 kg/year for polymers	10,000 kg per year
Four Corners Agreement	$500 to $2,000	No fees
Small and Medium Enterprise Notifications	Four levels based on SME sales	Flat fee of $152

¹ Based on exchange rate published in The Globe & Mail January 5, 1999: 1 US $ = 1.5263 CAN $

² NDSL = Non-Domestic Substance List

(3) European Union (EU) and Australia

The EU system makes use of a domestic substances inventory list, which is a closed list (additional substances cannot be added). The European Inventory of Existing Chemical Substances (EINECS) consists of those substances in the European Community market between 1971 and 1981. New substances are required to be tested and thus assessed before they are manufactured and/or imported. Once assessed, they are not added to the EINECS, but rather to the European List Inventory of New Chemicals Substances (ELINCS). Companies in EU member countries, other than the original applicant, must submit their own file in order to import or manufacture ELINCS listed substances.

New substances are controlled under the Dangerous Substances Directives (DSD). Cost recovery fees range from $1,095 to $13,475 ($CAN) (see footnote 8) . No information could be obtained on potential reduced fees for SMEs or for the use of new substances for R&D. There are reduced fees for an annual production of 10,000 kg or less.

In Australia, new substances are controlled under the National Industrial Chemicals Notification and Assessment Scheme (NICNAS), which came into effect in 1990. The Australian regulations are based on a distinction between established domestic substances and new substances. The Australian Inventory of Chemical Substances (AICS) requires that any new substances be assessed before being added to the AICS which consists of over 40,000 substances, and is an "open" inventory to which new substances are added five years after they have been assessed. Once on the AICS, any company may import or manufacture the substance. During the five-year period before the substance is added to the AICS, only the notifier may manufacture or import the new substance. Once notified, new substances are generally assessed within 90 days.

NICNAS currently recovers 100% of its costs. Pre-market notification is required for chemicals which are new to Australia; a fee is charged for this service. The current application processing fees are between $187 ($CAN (see footnote 9)  and $10,973 ($CAN). The imposed fee structure takes into consideration SMEs. To do so, fees are proportional to the annual monetary value of the relevant substances. These fees are presented in Table 3.

TABLE 3: Comparison of other countries cost recovery program for new substances notification

	CANADA	UNITED STATES	EUROPEAN UNION	AUSTRALIA
Legislation or Program	New Substance Notification (NSN) Program	Toxic Substances Control Act (TSCA)	Dangerous Substances Directives (DSD)	National Industrial Chemicals Notification and Assessment Scheme (NICNAS)
Effective Year	1994	1979	1979	1990
Domestic Inventory	DSL	TSCA Inventory	EINECS ELINCS	AICS
Inventory Size	23,500	70,000	> 100,000 N/A8	40,000
Time to Add to List 9	3 to 4 months (120 days proposed)	45 days	No data available	5 years
Assessment Time	5 to 90 days	90 days	45 days	90 days
R&D	No Fees	No fees	No data available	No fees
Trigger quantities under which there are reduced or no fees	No fees for use of : •  20 kg/year for chemicals not on NDSL10 and 1,000 kg/year for polymers •  1,000 kg/year for chemicals on the NDSL and 1,000/year for polymers	No fees for use of 10,000 kg per year or less	Reduced fees for use of 1,000 kg per year or less	No fees for use of 10 kg or less per year Reduced fees: •  import of 1,000 kg /year or less •  production of 10,000 kg /year or less
Sharing of other countries assessments	Yes	Yes	Yes	Yes
Small and Medium Enterprises	Reduced fees with total Canadian annual sales of less than $40 million	Reduced fees with total annual sales of less than $60.8 million	No data available	FEES Monetary value of substances ($CAN) ($CAN) No fees : < $468,927 $1,051/year: > $468,927 and < $4,689,275 $6,136/year: > $4,689,275
Various Levels of Notification	Yes	No	Yes (at each country's level)	Yes
Polymers containing less than 2% of a substance(s) from the inventory	No fees	No fees	No fees	No fees
Low Concern Polymers	Up to $1,500 (Schedule VI)	No fees	Reduced fees	Reduced Fees
Range of fees ($CAN)	$50 to $ 3,500	$152 to $3,815	$1,095 to $13,475	$187 to $10,973
% of total cost recovered with fees	22%	~25%	No data available	100%

⁸ Not applicable

⁹ Once assessment is complete, and any other requirements are met

¹⁰ Non Domestic Substances List

Benefits and Costs

The total cost of administering this Program was estimated at around $3.25 million a year ($2.11 million for EC and $1.14 million for HC), in 1998. The fee to be recovered as a result of the implementation of the cost recovery regulations is expected to total $700,000 a year corresponding to 22% of the total cost of administering the NSN Program, in 1998.

1. Full costs to government of providing services related to the NSN Program and the breakdown of these costs

The information on activities and budget allocations presented herein is based on the initial three years of operation of the NSN Program.

As a direct result of considering cost recovery, EC was able to reduce the cost of administering the NSN Program by at least 6%. Additional reductions may also be achieved through internal operation savings and service improvements or amendments.

As shown in Table 4, the NSN Program has two major activities (regular and special). For each type of activity, EC and HC have specified their human resources and financial budget needs. Total annual direct costs are obtained by evaluating the number of full time equivalents (FTEs) per activity, and adding 20% to the basic salaries to cover employee benefits. Operating and maintenance (O&M) costs are also added; these include expenditures related to professional development, hardware/software, conference travel, journal subscriptions, database subscriptions, meetings with regional offices, publication in the Canada Gazette, and costs associated with putting the DSL on the Internet. General overhead (indirect costs) is added and represents 41.8% for EC and 35.1% for HC. The expenditures are explained in detail in a document entitled: Discussion Paper: Cost Recovery for the CEPA New Substances Notification Program: Chemicals and Polymers which is available on EC's Web Site (http://www.ec.gc. ca/cceb1/cost/tableofcontents_e.htm).

2. Profile of affected sectors

The industrial sector that will be affected by these Regulations is the chemicals sector which is part of an expanding sector that provides high-quality jobs and contributes to the wealth of Canadians. The following bullets illustrate the importance of this sector to the Canadian economy:

Chemical plants are regionally concentrated in Ontario, Quebec and Alberta, with current expansion occurring primarily in Alberta and Quebec. Canadian producers have been largely geared to supplying the North American market, but new western capacity is being added to supply market demand in Southeast Asia.

TABLE 4: Breakdown of government expenditures to administer the NSN Program

	Environment Canada		Health Canada
	FTE	Total annual cost	FTE	Total annual cost
1. Direct costs that could be recovered from: Regular Activities
Notification Processing Notification Assessment Substance Assessment Control Options Maintenance of the DSL Maintenance of the NDSL Waivers Advice to Industry Administering Cost Recovery	2.1 1.4 3.5 0.3 0.4 0.3 0.75 1.8 0.5	$297,210 $165,690 $362,650 $22,400 $56,040 $28,230 $52,575 $193,450 $25,925	1.8 n/a 7.5 0.15 n/a n/a n/a 0.4 n/a	$110,481 $- $592,748 $18,671 $- $- $- $28,007 $-
Regular Activities Subtotal	11.05	$1,204,170	9.85	$749,907
Special Activities
Masked Name Requests Confidential Searches Four Corners Agreement Special Activities Subtotal	0.8 0.05 1.7 2.55	$73,080 $3,505 $123,413 $199,998	n/a n/a 1 1	$- $- $64,767 $64,767
Total of regular and special activities	13.6	$1,404,168	10.85	$814,674
Total direct costs that could be recovered	13.6 FTE	$1,404,168	10.85 FTE	$814,674
2. Direct costs that will not be recovered:
Late Additions to DSL Compliance Promotion Other Activities Total direct costs that will not be recovered	0.2 0.4 0.6	$15,020 $20,969 $48,929 $84,918	n/a Contract	$- n/a $32,675 $32,675
3. Total direct costs plus departmental overhead (Indirect costs not recovered)	41.8%	$1,489,086 $622,438	35.1%	$847,349 $297,419
4. Total direct and indirect costs		$2,111,524		$ 1,144,768
5. Total expenses for both departments:	$3,256,292

In 1996, the chemical sector:

•  was the fourth largest manufacturing sector in terms of its annual sales which totalled $22.8 billion ($1996);

•  was the third largest manufacturing sector in terms of its value added or its contribution to the Gross Domestic Product (GDP), which totalled $14 billion ($1996) or 1.6% of the GDP which totalled $829 billion in 1996;

•  made a significant contribution to employment since its total paid wages amounted to $1.9 billion ($1996) which represented 0.5% of the $429 billion ($1996) paid in Canadian wages in 1996;

•  had total imports of $18.4 billion ($1996), or 6% of total Canadian imports of $288 billion ($1996);

•  has total exports of $12.3 billion ($1996), or 4% of total Canadian exports of $321 billion ($1996);

•  accounted for a total of $1.3 billion ($1996) in investment, or 1% of total Canadian private sectors investments of $124 billion ($1996).

In terms of future trends, it should be mentioned that:

•  Canada is well positioned to benefit from the expected long-term growth in North American demand for ethylene derivatives and other petrochemical products. Canada has ample supply of hydrocarbons used as inputs to petrochemical products. In addition, Canadian industries are located closer to the Asian market relative to the U.S. industries located on the Mexican Gulf Coast.

•  Canada's natural resource wealth and skilled human resources as well as the educational infrastructure to supply skilled labour are the underlying strengths of its industrial chemical subsectors. To remain globally competitive, however, it is necessary to build on these strengths. In particular, continuous attention must be devoted to cost control and product innovation. While Canada is well positioned to attract investment, there is a need for ongoing review and assessment of certain factors that have an important influence on the competitiveness of Canadian-based activities relative to operations in the U.S., notably, construction costs, electricity costs, labour costs and environmental regulations.

It should be mentioned that the chemicals sector is highly heterogeneous and fragmented. Production in the industry can be divided into two categories: commodity chemicals and speciality chemicals.

At one end of the spectrum are commodity chemicals such as industrial chemicals, plastics and resins products, petrochemicals etc. Commodity chemicals are sold in large volumes on the basis of chemical or physical specifications. Profit margins are low, and success in the world market is based on achieving economies of scale. The major characteristics of commodity products are that they are export oriented, capital intensive, technologically advanced and largely foreign-owned. For the most part, Canadian chemical producers are price takers and their competitiveness is determined by their ability to meet global prices. The commodity sector has a reputation for investing heavily in technological improvements and expansion. Its gross investment grew by 9% a year in the 1980s. Capital intensity is very high and outstrips the overall manufacturing sector by a factor of four. Capital invested per employee has more than doubled in the 1980s. Canada is the world's largest exporter of several commodity chemicals, such as sulfur and potash, and has a significant share of the North American market in several other commodity chemicals. As a result, the trade balance for the commodity producers has a surplus of around $2.6 billion a year.

At the other end of the spectrum are speciality products such as soap, cleaning compounds, toilet products, pest control products, sanitizers, etc. These products contain higher value added, command higher market prices and are generally sold in smaller volumes than commodity chemicals. Speciality products are sold on the basis of the function they perform, and as a result, brand differentiation has become a feature of selling these products. Speciality chemicals firms generally have smaller operations and a higher degree of Canadian ownership. Imports exceed exports and this subsector has experienced an annual trade deficit of about $2 billion. This segment of the chemical industry is more vulnerable to requirements that will result in additional expenditures.

3. Impact of additional costs resulting from the implementation of the cost recovery initiative on demand for services

EC and HC expect that the implementation of cost recovery will contribute to reduced demand for notifications by imposing additional costs to affected firms. Such a reduction would be attributable primarily to:

•  firms that would like to avoid additional costs by using substitute substances which do not require notifications;

•  firms that will reduce the notification over-use that often exists with free services; and

•  firms that cannot afford the additional costs.

In order to determine the impact of a cost recovery initiative for NSN, a study was conducted originally, by Applied Research Consultant (ARC 1998). Findings from that study have assisted in developing the actual cost recovery initiative. Of the 37 businesses contacted, 22 responded to the survey. They represent 15% of the overall chemicals sector sales (SIC 37) or 50% of the sales of firms in EC/HC's database which have participated in the NSN Program since the NSNR came into force. It should also be noted that of all the proposed changes, the change to notification fees is the only one for which it has been possible to quantify the impact on the number of notifications.

In order to estimate the impacts of these original proposed fees on annual sales, respondents were asked to provide estimates of the impacts of the original proposed fees on their 1998 sales that are associated with substances that are subject to the NSNR. Specifically, they were asked to estimate how many fewer substances would have been notified and available for sale in order to compare their 1998 new substances sales with and without these substances.

Table 5 shows that the original proposed fees would have had a relatively minor impact on sales. This finding demonstrates that sales activity would not have been substantially impacted by the original proposed fees. Overall, sales would have declined from $548.6 million to $546.3 million, a decrease of $2.3 million or less than 0.5% of total sales.

The largest single category decline would have been the $1 million reduction in sales of chemical/polymers manufactured for exports, a decline of nearly 4%. The estimated reduction in annual sales is a short term impact, since it has been assessed over one year only. In the long term, firms not financially able to support the use of the new substances could lose part or all of their market share and this would result in a more significant decline in annual sales.

TABLE 5: Impacts of the original proposed cost recovery fees on annual sales, ARC Study, 1998

	Projected 1998 sales if original proposed fees not charged TOTAL	Projected 1998 sales if original proposed fees are charged TOTAL
Manufacturing chemicals/ polymers-domestic consumption	$3.0 M	$3.0 M
Manufacturing chemicals/polymers for export	$27.2 M	$26.2 M
Importing for domestic consumption (Resale or distribution of imported chemicals/ polymers)	$148.2 M	$146.9 M
Importing for subsequent export (Resale or distribution of imported chemicals/ polymers)	$46.0 M	$46.0 M
Domestically purchased chemicals/polymers for distribution within Canada	$214.4 M	$214.4 M
Domestically purchased chemical/polymers for distribution to export markets	$109.8 M	$109.8 M
Other	$0	$0
TOTAL	$548.6 M	$546.3 M

Table 6 shows the impacts of the original proposed cost recovery fees on the number of notifications. Schedule I is the most affected with a 52% notification reduction in the number of notifications, which will decline from 285 to 138. Other activities are also impacted but to a lesser extent.

Since there are no links between the original proposed fees and annual sales, it has not been possible to assess the impact of those fee changes on annual sales.

The ARC study shows that under the original fee proposal, the schedules and services most likely to be affected in terms of a reduction in notification demand were Schedules I, II (staged notification) and the matched notifications. According to the same study, the impact of the reduction in the number of notifications anticipated by the 22 businesses that responded to the survey before the fee adjustments were proposed as part of the NSFR, was as follows:

•  Close to 75% of the original proposed fees related to cost recovery is expected to be passed on to customers.

•  The original proposed fees were not expected to affect employment immediately; they could affect employment over the long run if they have an impact on market share.

TABLE 6: Impacts of the original proposed Cost Recovery on the number of notifications^*, ARC Study 1998

Activities	Reduction in the number of notifications	Reduction in the number of notification in %
Schedule I	from 285 to 138	52%
Masked Names	from 119 to 62	48%
Schedule VIp**	from 54 to 33	39%
Schedule VIf***	from 90 to 57	37%
Matched notifications	from 38 to 29	24%
Consolidated Notifications	from 19 to 16	16%

^* This table is limited to activities with more than 10 notifications

^** p stands for preliminary (DSL incomplete substance)

^*** f stands for final (DSL eligible substance)

•  In terms of competitiveness, the most negative impacts will be felt by the smaller notifying firms. The findings also show that firms anticipate that Canadian firms will be more vulnerable than their foreign competitors, who have access to new substances not available in Canada.

•  Even though very few firms were able to provide a quantitative estimate of the negative impact of original proposed fees on exports, firms involved in exports believe these fees would have an impact on their operations. Fifty percent (50%) of the responding firms believed that the original proposed fees would have affected their company's ability to attract or maintain product mandates to manufacture in Canada for exports and therefore would have had an impact on their product development plans. At the firm level, the impact on exports might be reduced because firms are increasingly tending to source products from the most competitive firms in terms of production costs; the most serious competition that a Canadian firm faces may be from a division of the same firm located outside Canada.

•  The original proposed fees could reduce availability of new chemicals and polymers. In this regard, it was expected that the Speciality products subsector would be the most affected, especially for products which have to face strong foreign competition. The survey has shown that just over half of the respondents indicated that there would be an increase in imports of finished goods made with new substances that are not available in Canada (e.g., furniture manufactured with adhesives containing new substances). An increase in imports of finished goods will result in an economic loss equivalent to the value added associated with the manufacturing of these goods. Some respondents, however, did not believe this would have occurred. The industry contends that the original proposed fees would have prevented some businesses from using new substances to address environmental problems.

•  Respondents stress that the original proposed fees could affect the timing for introducing new substances, by delaying their entry on the market. This would result in re-examining new product development plans, in introducing fewer products on the market and in affecting the location at which these products would be developed and produced. In terms of strategic plans, respondents mentioned potential impacts on production location, capital spending, plant closures, expansion plans and reduced services for small volume customers.

Given the above impacts on the number of notifications and annual sales associated with the originally proposed fees, from the ARC study, it was agreed jointly with stakeholders to propose adjustments to the fee structure. These changes consisted in a reduction or increase of the notification fees for specific schedules, an increase of the Canadian annual sale threshold from $10 to 40 million used to define SMEs, the implementation of the FCA and the assurance that any fee combinations will not exceed $3,500 for substances that will eventually be on the DSL and which are related to regular activities. Table 7 presents a summary of annual costs by schedule, proposed fees by schedule, and the expected annual revenues for the program. All these changes have been integrated in the current fee structure of the NSFR.

Overall, adjustments to the original proposal include reduction and increase in specific fees. EC is confident that the net impact on demand for notifications will be positive as a result of the implementation of the FCA, the assurance that any fee combinations for the regular activities (see table 4) will not exceed $3,500 and the increase of the Canadian annual sale threshold for SMEs.

It should be pointed out that even with the originally proposed fees, the ARC Study concluded, as the core finding, that the number of notifications for some schedules could have declined significantly but that the sales reduction would have been considerably smaller. It could then be concluded that the current fees coupled with the increase of SME annual sales threshold as well as the implementation of the FCA will have very small negative impacts on the whole chemical sector.

TABLE 7: Summary of Annual Costs by Schedule, Proposed Fees by Schedule, and Expected Annual Revenues

Please note that the width of this table exceeds the capacity permitted by the layout. See Table 7

4. Resource implications

As shown in Table 4, in the section on benefits and costs, the total direct cost of administering the NSN Program is around $1.4 million a year for EC and is $815,000 a year for HC (when overhead and the three activities that are not to be recovered are excluded).

The first three years of the implementation of the NSN Program (1994 to 1997) were used to estimate the 1998-1999 workload and work profiles under a cost recovery scheme. A workload projection was necessary since the initial years of operation include a retroactive component to deal with transitional substances. The estimated workload for 1998 was 500 notifications a year. The experience of other countries suggests that a steady state will not be achieved for approximately five years.

The total direct recoverable costs of the activities described in Table 4 were used to develop a cost structure for the 13 NSNR schedules. Average costs per schedule have been calculated by distributing these costs over the various schedule types, and dividing them by the projected volume of each schedule type. Table 7 provides details of annual costs per schedule, proposed current fees per schedule and expected annual revenue.

Finally, the benefits for implementing the NSFR include improving efficiency and equity of government spending by charging clients or beneficiaries who benefit from services beyond those enjoyed by the general public.

Consultation

This cost recovery initiative was recommended by Environment Canada's Program Review announced in February 1995.

Consultations were initiated with representatives of affected industrial sectors from the beginning of the development of the cost recovery initiative and throughout the fee-setting process. This has ensured that those who will pay for the service have an effective voice in the method of implementing this service and have an opportunity to comment on the extent to which the program should be cost recoverable and on the fee structure. Such a process has assisted in identifying the schedules most likely to result in negative financial impacts, and in proposing fee reductions with other changes to alleviate these negative impacts.

Following the findings of the ARC study on the original proposed fees, it was agreed jointly with stakeholders to propose adjustment to the fees structure. The agreement resulted in another fee reduction totalling $89,000 (Table 7). Those changes are reflected in current fees for the NSFR.

The Canadian Environmental Network (CEN) has also been part of the consultation and was provided with the discussion paper on the cost recovery. The CEN thinks that EC and HC have proposed a fair system of cost recovery and have done a good job on having a fair approach to the fee structure. A letter dated April 29, 1999 was sent to the CEN, the Consumer Association of Canada and the Food and Consumer Products Manufacturer of Canada. To these letters were attached the status of the consultation process, the minutes of the cost recovery Steering Committee meeting of February 18, 1998 and the final report of the business impact test. No comments have been received further to these letters.

A mailing list of approximately 2,500 was compiled based on previous requests for information on the NSNR. In March 1997, a bulletin outlining the proposal for cost recovery and the consultative process was sent to individuals on this list, inviting participation in the consultations either directly or through the auspices of the ICG which is composed of representatives of industry associations affected by the NSNR. Representatives of federal departments (EC, HC and IC) and the ICG held six meetings (see footnote 10)  during 1997-1998 fiscal year to discuss the first draft of the cost recovery proposal and to agree on a consultative mechanism. The last four meetings also included other industry representatives. These meetings ensured that the cost recovery initiative will result in minimal impacts on other government programs and objectives.

In order to ensure effective consultation on the fee regulations, a business impact equivalent analysis has been carried out under the auspices of the NSN Business Impact Advisory Group (BIAG) to assess the impacts resulting from the implementation of the fees. Representatives of EC, HC and IC, and industry were involved in this analysis.

The study concluded that, overall, the original proposed fees would have resulted in a relatively minor decrease of less than 0.5% of total sales. Subsequent adjustments to the fee structure were considered in order to decrease the total impact of the proposed fees regulations, including a reduction or increase of the notification fees for specific schedules, an increase of the Canadian annual threshold for SMEs, the implementation of the FCA, and the assurance that any fee combinations will not exceed $3,500. These measures help to alleviate the already minor contribution of the proposed fees to the cumulative burden facing the Canadian chemical sector.

The results of the business impact analysis have been made available to all those participating in the consultation process. The results have been used to identify the impacts of the regulations on business activities and have provided a mechanism for identifying problems and solutions resulting from the implementation of the NSNR. The results have also been taken into consideration as EC developed the NSN Program cost recovery regulation.

Upon publication in the Canada Gazette, Part I, on June 30, 2001, the private sector and general public had 60 days to provide the Minister with comments which would be taken into consideration prior to the publication of the regulations in the Canada Gazette, Part II. Comments on the regulations were received during the comment period which ended August 29, 2001.

There were some concerns about implementing the NSFR before the Treasury Board Review of the Cost Recovery and Charging Policy has been completed, and the issue of group benefit dealt with openly. TB has advised EC that the current Cost Recovery and Charging Policy is still in effect, and that the current review of this policy does not mean that new cost recovery initiatives cannot be put in place. TB has also indicated that the proposed cost recovery regime for new substance notifications is not at variance with the Cost Recovery and Charging Policy. Furthermore, in accordance with TBS recommendation, EC has strengthened its explanation of how it addresses, like other cost recovery programs, benefits that at some point become shared with others in a select group. Preliminary review of proposed revisions to the policy appear to strengthen EC's rationale by eliminating the need to distinguish between private and public benefits.

Comments were received to the effect that NSFR will not be applied in a fair manner, considering that a substance that is listed on the DSL is available for use by all Canadian industry, as well as foreign suppliers. For example, a company notifying a new substance for the first time will be penalized to the benefit of others.

It is within government authority to design CEPA such that only notifiers would have access to the substances they notify; and it is well within industry's prerogative to request that this be undertaken. To date no such effort has been made on the part of the Industry Coordination Group (ICG). It seems that industry's preference is to allow entry of these substances onto the DSL, and the benefit of placing substances on the public inventory outweighs benefits of instituting a "protected" inventory. Such a system is desired considering the vast majority of free-riders are in fact other notifiers who mutually benefit from these additions, underlining the necessity to retain a group private benefits concept.

The RIAS published by EC in the Canada Gazette, on June 30, 2001, was perceived as containing factual errors and misunderstandings about the market realities of the Canadian chemical sector. The content of the RIAS for pre-publication found to be contentious has been clarified and the necessary modifications have been made.

A point was made about the fact that stakeholders covered by Acts not included in the recent listing of other Federal Acts and Regulations in the CEPA, 1999 (Schedules 2 and 4) were never consulted on the NSFR. This has been acknowledged. Considering that it was never the Government's intent that these would be captured by the NSFR, the following exclusion will be factored in the NSFR: " These Regulations do not apply to the notifier of a new substance that is manufactured or imported for a use that is regulated under any other act of Parliament including the FDA, the FA and the HAA".

Some stakeholders ask for a mutual recognition of New Substances assessments with the U.S. prior to implementation of cost recovery. The harmonization with other jurisdictions is a long-term goal for the NS Program, and EC is working to achieve results in this area. In the meantime, there is a need to proceed with the implementation of the NSFR.

A suggestion was made for EC to outline how the fee structure will be changed or adjusted in the future. The fee structure will be adjusted if required and as any amendments are made to the NSFR. An evaluation framework will be developed in the year following the implementation of the regulations. Using this framework, a review will be conducted, in consultation with stakeholders, to reexamine the fee structure and further explore opportunities for program effectiveness and efficiency.

Communication Strategy

Copies of the NSFR and an implementation guide have been sent to businesses and relevant non-governmental associations. The Internet home page on new substances, www.ec.gc.ca/ substances/, will be used to announce the regulations and to distribute information to businesses and/or persons affected by or interested in the regulations. The CEPA Environmental Registry, www.ec.gc.ca/CEPARegistry/default/cfm, will also provide a reference point to the NSFR and associated documents.

Compliance and Enforcement

Since these Regulations are promulgated under the CEPA, 1999, the Compliance and Enforcement Policy implemented under the Act will be applied by CEPA enforcement officers. The policy outlines measures designed to promote compliance, including education, information, promoting of technology development and consultation on the development of regulations.

When verifying compliance with these Regulations, CEPA enforcement officers will abide by the Compliance and Enforcement Policy, which sets out the range of possible responses to violations: warnings, directions, environmental protection compliance orders, ticketing, ministerial orders, injunctions, prosecution, and environmental protection alternative measures. In addition, the policy explains when EC will resort to civil suits by the Crown for cost recovery.

If, following an inspection or an investigation, a CEPA enforcement officer confirms that a violation has been committed, the enforcement officer will select the appropriate response, based on the following criteria:

•  Nature of the alleged violation: This includes consideration of the damage, the intent of the alleged violator, whether it is a repeat violation, and whether an attempt has been made to conceal information or otherwise subvert the objectives and requirements of the Act.

•  Effectiveness in achieving the desired result with the alleged violator: The desired result is compliance within the shortest possible time and with no further repetition of the violation. Factors to be considered include the violator's history of compliance with the Act, willingness to cooperate with enforcement officials, and evidence of corrective action already taken.

•  Consistency: enforcement officers will consider how similar situations have been handled in determining the measures to be taken to enforce the Act.

Contacts

David McBain

New Substances Branch

Toxics Pollution Prevention Directorate

Environment Canada

Hull, Quebec

K1A 0H3

Telephone: (819) 997-4336

FAX: (819) 953-7155

E-mail: david.mcbain@ec.gc.ca

Céline Labossière

Regulatory and Economic Analysis Branch

Economic and Regulatory Affairs Directorate

Environment Canada

Hull, Quebec

K1A 0H3

Telephone: (819) 997-2377

FAX: (819) 997-2769

E-mail: celine.labossiere@ec.gc.ca

Footnote a 

S.C. 1999, c. 33

Footnote b 

S.C. 1999, c. 33

Footnote 1 

In this document, all dollar figures are expressed in 1998 Canadian dollars unless otherwise specified

Footnote 2 

Cost Recovery and User Charging Policy (CRUCP), Implementation Requirements (b), page 4

Footnote 3 

Special Activities include: Masked Name Requests, Confidential Searches and Four Corners Agreement

Footnote 4 

Total annual sales will be established on a financial statement declaring the total company sales for the previous fiscal period, and signed by an authorized company official. EC may audit such a statement

Footnote 5 

The NDSL specifies substances that sare not on the DSL but are believed to be in international commerce. The NDSL is based on the U.S. Toxic Substances Control Act Inventory of Substances. Substances listed on the NDSL require less detailed notification packages for assessment than substances that are new to both the Canadian marketplace and world commerce (section 66 of CEPA)

Footnote 6 

p stands for preliminary (DSL incomplete substance)

Footnote 7 

Based on exchange rate published in The Globe & Mail, January 5, 1999: 1 US $ = 1.5263 Can$

Footnote 8 

Based on exchange rate published in The Globe and Mail, January 5, 1999, 1 Euro = 1.8123 $ CAN

Footnote 9 

Based on exchange rate published in The Globe & Mail, January 5, 1999: 1 AUS $ = 0.9361 $ CAN

Footnote 10 

April 8, June 26, July 24, September 9, November 12, 1997 and February 18, 1998

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